Australians lost more than $10 million to scammers last year. Follow these easy tips to avoid being conned.



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Scammers impersonating the Australian Taxation Office have fleeced Australians of more than $830,000.
Shutterstock

Damien Manuel, Deakin University

Many of us start a typical day by checking our phones to read emails, social media posts and the weather. Our phones are trusted devices we use constantly throughout the day to communicate. But the trust we place in our phones, and the way we interact with the world, also makes it easy for scammers to target us.

Our evolutionary past also makes us susceptible to scams. Humans are curious social animals, which means we are more trusting than we should be. That’s especially the case when we’re dealing with people over the phone, email or via SMS, where we don’t have the normal body language cues we would subconsciously process when making decisions.

We are also susceptible to fear and other psychological tools scammers use to create a sense of urgency that tricks us into making irrational decisions and taking action. Simply being aware that scams are out there is not enough to protect us from them. We also need to change our behaviour.

Scam using branding and authority to make you click to see the confidential information.
Damien Manuel



Read more:
Why ‘Nigerian Prince’ scams continue to dupe us


Who are these scammers and what do they want?

Scammers come in all shapes and sizes. Some are individuals, others are gangs. The more sophisticated scammers are criminal syndicates and foreign governments looking for a way to subvert international sanctions and obtain money through cyber crime.

The motivations of scammers ranges greatly, but can include:

  • stealing intellectual property
  • tricking you to install malicious software (to steal your data or hold you to ransom)
  • stealing your identity so they can pretend to be you and conduct fraud
  • tricking you to part with your hard earned cash
  • gaining control of your device to steal information at a later date or using your device to attack other people you know.

What techniques are they using?

Scammers are experts at social engineering and use a number of tricks to build rapport, credibility and trust with their targets.

Modifying the caller ID is a simple way to build credibility by making a call or SMS appear to come from an authority like the Australian Tax Office. The rise of cheap Voice over Internet Protocol (VoIP) providers and other online tools has made it even easier for anyone to exploit the phone systems and “spoof” other numbers.

An SMS scam that uses urgency and fear of fines to get people to click a link.
Damien Manuel

In the VoIP phone system, the person initiating the call defines the caller ID seen by the receiver. This is the same for traditional phone systems, however the lower price of VoIP and ease at which the caller ID can be modified without any technical knowledge (via a simple web page) makes it faster and cheaper for scammers to cycle through a number of fake caller IDs in a single day. It also allows them to move to a new source number or VoIP provider very quickly, making it harder for telcos in Australia to block.

There are legitimate business reasons for allowing the caller ID to be modified, such as when companies operating call centres want all outbound phone calls from their staff to appear to originate from a single “help desk” phone number.




Read more:
New ‘virtual kidnapping’ scam targeting Chinese students makes use of data shared online


Email spoofing is also common and easy to do. This is where an attacker forges the email header, making the email look like it originated from a friend, authority or service provider, such as a bank. A key way to identify a spoofed email is to check the email address itself (the reply field) rather than just relying on the display name in the “from” field.

Most email clients (such as Gmail or Outlook) on desktops or laptops are capable of displaying email headers. Unfortunately email clients on most smartphones and tablets make it difficult to see the real source and often only show the forged “display name” information.

Phone and email are the two main scam delivery methods. Losses from attempts to gain your personal information rose by more than 61% between 2017 and 2018. This trend shows no sign of slowing down. Last year, Australians lost more than $10 million to scammers.

An example of a scam email.
Damien Manuel

Signs of a scam

Ten common warning signs you are dealing with a scammer include the following:

  • being asked for password, PINs or other sensitive information
  • being told you are owed a refund
  • being told you have unpaid bills, unpaid fines from the police or a government department
  • being notified there is a problem with your email or bank account
  • being asked for urgent help
  • being congratulated on winning a competition (you didn’t enter)
  • being asked to click on a link or open a document
  • being sent an unexpected invoice to open
  • receiving a critical alert message with a link to click
  • receiving a tracking number and link for a delivery (you didn’t order).
A scam telling you your mail box full is designed to make you click on a link.
Damien Manuel



Read more:
More than just money: getting caught in a romance scam could cost you your life


Simple tips to avoid being conned

Firstly, don’t click on any links, don’t respond to offers to opt-out or unsubscribe, don’t call return calls from numbers you don’t recognise and, most importantly, don’t give out personal information – even if you think it isn’t important.

Remember, some scams are multi-step scams. The best thing you can do is to report the scam and tell your friends and family to be aware of the scam so they can modify their behaviours.

Scams can be reported to various government agencies, such as Scam Watch, the Australian Cybercrime Online Reporting Network (ACORN) and, in some cases, the service provider – for example, the ATO, Telstra, AusPost and the banks.The Conversation

An example of a multi-step scam that validates your email is real and then harvests the credentials you enter.
Damien Manuel

Damien Manuel, Director, Centre for Cyber Security Research & Innovation (CSRI), Deakin University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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New figures put it beyond doubt. When it comes to company tax, we are a high-tax country, in part because it works well for us



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The latest figures put Australia near the top when it comes to company tax collections, even though our total tax take isn’t particularly high.
OECD

Miranda Stewart, University of Melbourne

In international tax circles, as in other areas, we often talk about American exceptionalism.

But these days, it is becoming increasingly clear that Australia is exceptional in taxation, among members of the Organisation for Economic Co-operation and Development and indeed, compared to countries around the globe.

The OECD has just produced its first-ever detailed comparison of company tax collections and rates and effective rates around the world. The “statutory” or headline rate comparisons cover 94 countries. The harder to calculate “effective” tax comparisons cover 88 countries.

The bad news – for companies – is that Australia is close to the top among the 94 countries, and in one of the measures, the effective marginal company tax rate (more on this later), third from the top.


OECD Corporate Tax Statistics.
OECD

Interestingly, in another recent report, the OECD shows that Australia clearly falls into the “low tax” group among OECD countries, with a tax-to-GDP ratio below 30%. But within that context we rely heavily on company tax.

Company tax revenues are high

Australia’s A$80 billion in company tax collections in 2016 was about 4.6% of GDP, ranking Australia twelfth out of the 88 countries for which the OECD had information.

Company tax accounted for 16% of Australia’s total tax revenue, the 27th highest out of the 88 countries.

The statistics have oddities. Luxembourg and Switzerland also have a high share of company tax revenues because they attract so much global capital. In contrast, the overall high-taxing countries of France, Denmark and Finland collect much less revenue from company tax.


OECD Corporate Tax Statistics.
OECD

Headline rates are heading down

Corporate tax rates have been trending down for at least two decades. The Trump tax changes in 2017 that lowered the US federal rate to 21% was the latest dramatic change, but the United Kingdom now has a rate of 19% and many European countries sit at or below 25%. The change since 2000 has been dramatic and the global average is now 20%.

In our Asian region, the average headline corporate tax rate is 15%. As a result of tax incentives available around Asia, companies involved in manufacturing and supply chains often face a lower, or zero, rate.

This trend was identified by the Henry Tax Review in 2009, which recommended transitioning to a 25% rate, which today could be financed with a 1% increase in Australia’s GST rate, according to recent modelling by Chris Murphy.


OECD Corporate Tax Statistics.
OECD

What matters are effective tax rates

The OECD also compares effective marginal tax rates (EMTRs), and effective average tax rates (EATRs), for corporate investment. These combine the headline rate with the rules for corporate investment, depreciation allowances for plant and equipment, and intellectual property investment.

In theory, investors choose to invest based on the expected after-tax rate of return, taking into account tax breaks and special rules.

The EMTR determines the tax cost of expanding an existing investment: putting one more dollar into that investment. In the EMTR ranking, Australia is third highest.

Countries that provide a tax break known as allowance for corporate equity, including Belgium and Italy, actually have negative tax rates on increased investment.

The EATR reflects the tax rate that would be paid on an entire new investment. In the EATR ranking, Australia is, again, near the top in ninth place, at 30% – the same as our statutory rate.


OECD Corporate Tax Statistics.
OECD

Unlike many other countries, Australia has few tax incentives. We do not have a low tax regime for intellectual property or accelerated depreciation for new equipment – except for small businesses, and mining exploration. Only in research and development did Australia provide higher tax subsidies than some other countries and the R&D concession is being tightened.

Overall, Australia’s high rate and broad corporate tax base makes new investment, or the expansion of existing investment, expensive relative to other countries.

Why are we such an outlier?

Australia is a resource extraction and exporting economy.

We haven’t had to compete quite as hard for foreign investment as other countries.

Our relatively high rate of company tax serves two purposes: to tax company profits and to get a fair return on resources in the ground which state governments, through royalties, don’t properly charge for.

And we are geographically isolated, meaning that, even in the global digital economy, it is hard for companies to service us from offshore. Many have to be here and subject to tax.

Also, and importantly, our reliance on corporate tax is not as dramatic as it seems, because of our almost unique dividend imputation system. About one third to one half of corporate tax revenues are handed back to shareholders in credits against company tax already collected. (New Zealand, which has an imputation system, also has high corporate tax revenues).

Kevin Davies suggests that the “real” corporate tax rate in Australia, taking account of dividend imputation, is below 20%.

But that assumes a closed economy. The reality is that the imputation system subsidises some domestic investors – especially tax-free retirees with self managed super funds – while pushing the full weight of company tax onto foreign investment, at the expense of the economy as a whole, and at the expense of Australians who could potentially benefit from that investment.




Read more:
Tax reform aside, there’s no real case to kill off dividend imputation


The political heat generated by Labor’s proposal to end the payment of imputation cheques to retirees who don’t pay tax shows their high value to domestic investors. Self-managed super funds are massively overweight in stocks that provide imputation credits, skewing the Australian share market and the dividend policy of our largest companies.

Does it matter?

Australia’s high company tax rate, and the bias in our imputation system against foreign equity, mean that large multinationals will increasingly borrow to finance Australian investment rather than issue shares.

They will get tax deductions for outbound flows of interest, service fees and royalties, while shifting more and more of their sales, marketing and intellectual property offshore where they can.

Australia can, and is, clamping down on profit shifting, but it’s a never-ending battle.

A bold suggestion is that we should scrap our system of dividend imputation and use the money saved to dramatically cut the rate of company tax. It would make Australia much more attractive to foreign investors, although much less attractive to retirees.

Another idea aired in The Conversation late last year is that we should make new capital investment fully tax deductible, turning company tax into a “cashflow tax”.




Read more:
Here’s a long-term budget fix that would boost investment: replace company tax with cashflow tax


What we’ll probably end up with is a compromise – a combination of permitting greater deductions for new investment and lowering the rate will be the answer, while limiting or ending dividend imputation.

There’s much to be proud of in being a weird mob.

But as David Ingles and I argued in a research paper last year, it is not smart to ignore what’s happening in other places.

It is true we are geographically isolated, and it is true our resources make us different, but we exist in a global tax environment in which investors consider tax when they decide where to put their money. It is beyond our control.




Read more:
Myth busting claims on the impact of the company tax cut


The Conversation


Miranda Stewart, Professor, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Why the Indian Ocean region might soon play a lead role in world affairs



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The economics of countries in the Indian Ocean region are rapidly growing.
from shutterstock.com

Craig Jeffrey, University of Melbourne

In recent days, Australia’s foreign minister Marise Payne announced efforts to strengthen Australia’s involvement in the Indian Ocean region, and the importance of working with India in defence and other activities. Speaking at the Raisina Dialogue in Delhi – a geopolitical conference co-hosted by the Indian government – Payne said:

Our respective futures are intertwined and heavily dependent on how well we cooperate on the challenges and opportunities in the Indian Ocean in the decades ahead.

Among Payne’s announcements was A$25 million for a four-year infrastructure program in South Asia (The South Asia Regional Infrastructure Connectivity initiative, or SARIC), which will primarily focus on the transport and energy sectors.

She also pointed to increasing defence activities in the Indian Ocean, noting that in 2014, Australia and India had conducted 11 defence activities together, with the figure reaching 38 in 2018.




Read more:
Government report provides important opportunity to rethink Australia’s relationship with India


Payne’s speech highlights the emergent power of the Indian Ocean region in world affairs. The region comprises the ocean itself and the countries that border it. These include Australia, India, Indonesia, Bangladesh, Madagascar, Somalia, Tanzania, South Africa, the United Arab Emirates and Yemen.

In terms of global political significance, the Atlantic Ocean can be viewed as the ocean of our grandparents and parents; the Pacific Ocean as the ocean of us and our children; and the Indian Ocean as the ocean of our children and grandchildren.

There is an obvious sense in which the region is the future. The average age of people in the region’s countries is under 30, compared to 38 in the US and 46 in Japan. The countries bordering the Indian Ocean are home to 2.5 billion people, which is one-third of the world’s population.

The countries in the Indian Ocean region host a wide variety of races, cultures, and religions.
from shutterstock.com

But there is also a strong economic and political logic to spotlighting the Indian Ocean as a key emerging region in world affairs and strategic priority for Australia.

Some 80% of the world’s maritime oil trade flows through three narrow passages of water, known as choke points, in the Indian Ocean. This includes the Strait of Hormuz – located between the Persian Gulf and the Gulf of Oman – which provides the only sea passage from the Persian Gulf to the open ocean.

The economies of many Indian Ocean countries are expanding rapidly as investors seek new opportunities. Bangladesh, India, Malaysia and Tanzania witnessed economic growth in excess of 5% in 2017 – well above the global average of 3.2%.

India is the fastest growing major economy in the world. With a population expected to become the world’s largest in the coming decades, it is also the one with the most potential.

The strait of Hormuz is one of the world’s most strategically important choke points.
from shutterstock.com

Politically, the Indian Ocean is becoming a pivotal zone of strategic competition. China is investing hundreds of billions of dollars in infrastructure projects across the region as part of its One Belt One Road initiative.

For instance, China gave Kenya a US$3.2 billion loan to construct a 470 kilometre railway (Kenya’s biggest infrastructure project in over 50 years) linking the capital Nairobi to the Indian Ocean port city of Mombasa.

Chinese state-backed firms are also investing in infrastructure and ports in Sri Lanka, the Maldives, and Bangladesh. Western powers, including Australia and the United States, have sought to counter-balance China’s growing influence across the region by launching their own infrastructure funds – such as the US$113 million US fund announced last August for digital economy, energy, and infrastructure projects.

In security terms, piracy, unregulated migration, and the continued presence of extremist groups in Somalia, Bangladesh and parts of Indonesia pose significant threats to Indian ocean countries.

Countries in the region need to collaborate to build economic strength and address geopolitical risks, and there is a logical leadership role for India, being the largest player in the region.

Prime Minister Narendra Modi told the Shangri La Dialogue in June, 2008:

The Indo-Pacific is a natural region. It is also home to a vast array of global opportunities and challenges. I am increasingly convinced with each passing day that the destinies of those of us who live in the region are linked.

More than previous Indian Prime Ministers, Modi has travelled up and down the east coast of Africa to promote cooperation and strengthen trade and investment ties, and he has articulated strong visions of India-Africa cooperative interest.

Broader groups are also emerging. In 1997, nations bordering the Bay of Bengal established the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC), which works to promote trade links and is currently negotiating a free trade agreement. Australia, along with 21 other border states, is a member of the Indian Ocean Rim Association (IORA) which seeks to promote sustainable economic growth, trade liberalisation and security.

But, notwithstanding India’s energy and this organisational growth, Indian Ocean cooperation is weak relative to Atlantic and Pacific initiatives.




Read more:
Cooperation is key to securing maritime security in the Indian Ocean


Australia’s 2017 Foreign Policy White Paper seeks to support IORA in areas such as maritime security and international law. Private organisations, such as the Minderoo Foundation, are doing impressive research – as part of the Flourishing Oceans intiative – on the migration of sea life in an effort to advance environmental sustainability and conservation.

But Australia could focus more on how to promote the Indian Ocean. In Australia’s foreign affairs circles, there used to be a sense Asia stopped at Malta. But it seems the current general understanding of the “Indo-Pacific” extends west only as far as India.

What this misses – apart from the historical relevance and contemporary economic and political significance of the Indian Ocean region generously defined – is the importance of the ocean itself.

Not just important for trade and ties

If the Ocean was a rainforest, and widely acknowledged as a repository of enormous biodiversity, imagine the uproar at its current contamination and the clamour around collaborating across all countries bordering the ocean to protect it.

The reefs, mangroves, and marine species that live in the Ocean are under imminent threat. According to some estimates, the Indian Ocean is warming three times faster than the Pacific Ocean .

Overfishing, coastal degradation, and pollution are also harming the ocean. This could have catastrophic implications for the tens of millions of fishermen dependent on the region’s marine resources and the enormous population who rely on the Indian Ocean for their protein.

Australia must continue to strengthen its ties in the region – such as with India and Indonesia – and also build new connections, particularly in Africa.The Conversation

Craig Jeffrey, Director and CEO of the Australia India Institute; Professor of Development Geography, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Shorten’s subsidy plan to boost affordable housing



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Labor would work with community housing providers, the residential construction sector and institutional investors.
Flickr, CC BY

Michelle Grattan, University of Canberra

Institutional investors would receive long-term subsidies to build new dwellings – on condition they rented them out below market rates – under an affordable housing program Bill Shorten is announcing on the first day of Labor’s national conference in Adelaide.

A Labor government would offer 15-year subsidies – $8,500 a year – for investors building new homes provided they charged rent at 20% under the market rate.

The program would cost A$102 million over the forward estimates to 2021-22 and A$6.6 billion over the decade to 2028-29. The costing was done by the Parliamentary Budget Office.

In his Sunday announcement, Shorten says that the ALP’s ten-year plan to build 250,000 houses and units would be Australia’s “biggest ever investment in affordable housing”. The plan includes 20,000 dwellings in the first term of a Labor government.

“This is a cost-of-living plan, a jobs plan and a housing plan. It will give working families a fair go to put a roof over their head now – and save for their own home in the future.”

He says these dwellings would be available to renters on “low and moderate incomes”. A family paying the average national rent of $462 a week could save $92 a week.

Labor would work with community housing providers, the residential construction sector and institutional investors.

“Labor’s plan will provide investors with certainty to build – knowing that they will have long-term government support and guarantees beyond the decade.”

Shorten says access to housing is one of the biggest challenges to dealing with intergenerational inequality, as an increasing “wealth gap” locks people out of the housing market.

“Increasing the supply of affordable housing is critical to addressing pressures on disposable income and, in turn, addressing inequality.

“Labor’s plan will deliver affordable, environmentally sustainable housing that helps to reduce energy consumption and cost-of-living pressures on Australian families.”

Shorten says the existing rental scheme – the National Rental Affordability Scheme – has attracted private investment of about A$12.9 billion, delivering 37,000 dwellings in a decade.

“Despite this success, the Liberals have abandoned affordable housing and axed the subsidies that encourage affordable housing. There is a severe shortage of affordable rental housing in Australia and many families are struggling to find and keep a roof over their heads. The number of Australians experiencing rental and mortgage stress is at record levels.”

The Australian Housing and Urban Research Institute estimates a shortfall of more than 525,000 affordable rental properties, Shorten says.

Overseas students, temporary foreign workers and other non-residents would not be eligible to rent under the Labor scheme.

Shorten says the plan would support the ALP’s reforms to negative gearing, “which direct concessions to newly built premises and encourage housing construction”.

Labor hopes that the three-day conference will end the year on a high note for the opposition, after its strong two-party performance in polling during 2018. Maximum effort has been made to ensure that internal policy differences are managed to avoid damaging public divisions.

Shorten told a press conference on Saturday that he hoped to see “energetic, enthusiastic debate” at the conference.

He said “perhaps the most valuable proposition that Labor presents the Australian people at the federal election within the next five months – it’s a united team, it’s energetic and it’s a team with vision”.

Shorten defended his undertaking that Newstart would be reviewed ahead of an ALP government considering an increase.

“I think Newstart is too low. I don’t think anyone who says that it needs to increase is wrong.

“But what we’ll need to do from government is review the level and understand the implications of increasing Newstart, along with the impact on all of our other taxes and payment systems.

“We have to look at what we can afford as a nation. But we’re not reviewing Newstart to decrease it.”

On the sensitive issue of asylum-seeker policy, Shorten told his press conference a Labor government would put whatever resources were needed into stopping boats.

It would also support regional and offshore processing. It would take refugees into Australia – “properly, not via people smugglers”.

“We want to be a good international citizen – we also recognise, however, that we’ve got to make sure that whatever policy we adopt we can afford, and that it meets our combined goals of not keeping people in indefinite detention on Manus and Nauru but also keeping our borders strong, so we never again see the people-smuggling trade start up.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

MYEFO reveals billions more in revenue, $9 billion in fresh election tax cuts


Peter Martin, The Conversation

Higher-than-expected company tax revenue and lower-than-expected spending have boosted the budget’s bottom line by A$15 billion over next four years, allowing it to forecast cumulative surpluses of A$30.4 billion, double what the budget predicted in May.

Modestly improved surpluses

The midyear budget update cuts the projected deficit for 2018-19 from a May estimate of A$14.5 billion to A$5.2 billion.

The surplus forecast for 2019-20 climbs from A$2.2 billion to A$4.1 billion. By 2021-22 the surplus is forecast to be A$19 billion, up from A$16.6 billion.



The surplus won’t reach the government’s long-term target of 1% of gross domestic product until 2025-26. And in projections out to 2028-29 it is not forecast to climb much above this target as the budget hits the Coalition’s self-imposed tax “speed limit” of 23.9% of GDP.



$9 billion in unannounced tax cuts

The budget boost would have been much bigger were it not for more than A$9 billion in “decisions taken but not announced”. Almost all of these are revenue decisions, presumably extra election tax cuts, worth A$2.5 billion to A$3.7 billion per year.

The budget papers say these are decisions taken since the May budget, and are either not for publication or haven’t yet been made public.




Read more:
More mirage than good management, MYEFO fails to hit its own targets


Treasurer Josh Frydenberg confirmed the government had taken decisions to do with tax, but said it would announce them at a time of its choosing rather than in the budget update.

It reserved the right to take other tax and spending decisions in the lead-up to the election. Some would be revealed in the 2019-20 budget, to be delivered in April rather than in May to allow an election in May.

Downgraded wage growth

Although the Treasury has revised up its estimates for revenue and revised down its estimates of unemployment, expecting the rate to fall to 5% by June 2019 and stay there, it has shaved 0.25 percentage points off its estimates for wage growth.

It now expects wages to grow by 2.5% in the year to June 2019 (down from 2.75%) and 3% in 2019-20 (down from 3.25%). In future years, it expects wage growth of 3.5%.



Addressing the downgrade, Mr Frydenberg said weaker-than-expected wage growth appeared to be part of a worldwide phenomenon, “not unique to us”.

Wage growth for the year to September was 2.3%, the highest since 2015. The statement said anecdotal evidence from Treasury’s business liaison program pointed to “skills shortages and wage pressures in some sectors of the economy, consistent with a tightening labour market”.

Weaker consumer spending, economic growth

Growth in consumer spending has also been revised down, from 2.75% in 2018-19 to 2.5%. It is expected to climb back to 3% in 2019-20.

The statement revises down the government’s forecast of economic growth in 2018-19 from 3% to 2.75%, in part because of the Queensland drought, but predicts growth of 3% in 2019-20, 2020-21 and 2021-22, a touch higher than the Treasury’s estimate of long-term sustainable growth.

The Treasury is expecting economic growth to weaken in China and the United States, slipping from 6.5% in China to 6% in 2019 and 2020, and from 2.75% in the US to 2.25 and then 2%.

But debt has peaked and is headed down

The update shows that net debt has already peaked as a proportion of GDP and will fall faster than previously expected, in line with higher surpluses, sliding from 18.2% of GDP to 1.5% over the decade to 2028-29.



Government receipts are expected to climb from 24.9% of GDP to 25.5% by 2021-22. Payments are expected to fall from 24.9% of GDP to 24.6%.

Mr Frydenberg said the Coalition had kept average real spending growth at 1.9% per year, well below Labor’s 4% over six years which included the global financial crisis.



Finance Minister Mathias Cormann said recurrent spending had fallen below recurrent revenue for the first time in more than a decade.

Recurrent spending excludes spending on long-term investments in things such as road and rail infrastructure.

He said all new spending since the May budget had been offset by spending cuts elsewhere.

No firm commitment on fiscal discipline

Asked whether he felt bound by a commitment in the budget papers to bank rather than spend improvements to the budget’s bottom line due to changes in the economy, Cormann said it was “a matter of balancing priorities”.

The imperative to cut tax to keep it below the government’s self-imposed speed limit might conflict with the commitment to devote extra tax takings to improving the bottom line.




Read more:
Monday’s MYEFO will look good, but it will set the budget up for awful trouble down the track


The Conversation


Peter Martin, Editor, Business and Economy, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

More mirage than good management, MYEFO fails to hit its own targets


Danielle Wood, Grattan Institute and Kate Griffiths, Grattan Institute

The Morrison government wants next year’s election to be about economic management.

So understandably, it’s using the improved bottom line in the Mid Year Economic and Fiscal Outlook (MYEFO) to talk up its economic credentials.

But the numbers in MYEFO show it has failed to hit many of its own targets.

Target 1: Surpluses on average over the cycle

The government’s overarching fiscal objective is to deliver budget surpluses: not just in one year but on average over the economic cycle.

MYEFO indicates the government is expecting a $5.2 billion deficit in 2018-19 (0.3% of GDP).

It will be the 11th consecutive deficit for the Commonwealth budget.

Deficits have averaged $33.2 billion (2.1% of GDP) over those 11 years.

Yes, a $4.1 billion surplus is forecast for next year, with surpluses projected to reach $19 billion (0.9% of GDP) by 2021-22.

But so big have the recent deficits been, that even if everything goes well and the fiscal position continues to improve, the budget would need to be in surplus for decades to produce a surplus on average over each year, far longer than what most economists consider a typical economic cycle.




Read more:
MYEFO reveals billions more in revenue, $9 billion in fresh election tax cuts


A related fiscal target is that budget surpluses will build to at least 1% of GDP as soon as possible.

Despite revenue windfalls from income and company taxes (discussed below), the government is still forecasting it won’t reach that 1% of GDP surplus target until 2025-26.

Policy decisions in this year’s budget and MYEFO – including income and company tax cuts, additional funding for independent and Catholic schools, and changes to the GST formula to placate Western Australia – have weakened the bottom line in 2021-22 by $10.5 billion.

Hardly the actions of a government in a hurry to deliver a sizeable surplus.

Verdict: Fail.



Target 2: Reduce the payments-to-GDP ratio

The government’s policy is also to maintain strong fiscal discipline by controlling expenditure, with a falling payments-to-GDP ratio its measure of success.

Whether it has met the target depends on the starting year. Governments payments are forecast to reach 24.9% of GDP in 2018-19, up from 23.9% in 2012-13 before the Coalition took office.

The government prefers the starting point of its first year in office 2013-14 where payments were 25.5% of GDP.

Either way, payments in 2018-19 remain above the 30-year historical average of 24.7% of GDP.




Read more:
Morrison’s return to surplus built on the back of higher tax – Parliamentary Budget Office


While the government projects that spending will fall slightly further to 24.6% of GDP by 2021-22, this relies on spending growth across the government’s major programs falling substantially compared to the previous four years – without major policy changes to help facilitate the fall.

Verdict: Debateable pass.



Target 3: Tax-to-GDP ratio below 23.9% of GDP

In last year’s budget, the government introduced a new target of capping tax collections at 23.9% of GDP.

Why 23.9%? That was the average level of tax during the final two terms of the Howard/Costello government.

While the Coalition is understandably keen to follow the lead of one of its most electorally successful governments, that was also a period where tax collections were historically high.

Tax collections are projected to reach 23.8% of GDP in 2022, on the back of stronger than forecast personal income tax and company tax receipts.

Verdict: Pass.


MYEFO Chart.


Target 4: New spending measures more than offset by reductions in spending elsewhere

Since becoming prime minister, Scott Morrison has sent mixed signals about whether his government will adhere to the longstanding budget rule that all new spending proposals be matched with budget savings.

At the MYEFO press conference, Finance Minister Matthias Cormann said it was a “matter of balancing competition priorities”.

Here’s the straight answer – the net effect of policy changes announced in MYEFO are an additional $12.2 billion in spending over four years.

In other words, the government has not offset new spending with cuts to other spending programs. The Turnbull government similarly failed to offset its new spending in 2017-18 (although it succeeded in prior years).




Read more:
Monday’s MYEFO will look good, but it will set the budget up for awful trouble down the track


There have been some reductions in spending because of improvements in the economy. The government claims these reductions offset its recent spending announcements. But genuine offsets come from policy changes, not economic good luck.

Verdict: Fail.

Target 5: Shifts due to changes in the economy banked as an improvement in budget bottom line

This objective is key to the government’s fiscal conservative credentials.

If it has some economic good luck, it commits to use the proceeds for budget repair rather than new spending or tax cuts.

This rule has been irrelevant for most of the past decade, because almost every budget had revenue collections falling short of forecast.

But the Morrison government is in the middle of a mini revenue boom – revenue collections were higher than forecast in both the 2018-19 budget and MYEFO.

Company tax collections are higher largely due to strong commodity prices. Income tax collections are up and government spending is down because of improvements in the economy.




Read more:
Labor would deliver bigger surpluses than the Coalition: Bowen


So has the government used this chance to show off its fiscal prudence?

Not exactly. It will spend around $11.8 billion of this windfall, give away another $19.3 billion in tax cuts and bank just over half of it ($35.2 billion) to the bottom line.

And in the shadow of an election, we can almost certainly expect further spending. The $9 billion in decisions taken but not announced – potentially a pre-election warchest – suggests that more tax cuts could also be on the way.

Verdict: Fail.

Our final verdict

The challenge in assessing budget management is separating good luck from good management. Governments will always seek to take credit for economic upswings that boost the bottom line.

Fiscal targets are there to keep them on the straight and narrow.

An objective assessment of the government’s performance against its own key targets suggests its good news budget is more mirage than magnificent management.The Conversation

Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute and Kate Griffiths, Senior Associate, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

ACCC wants to curb digital platform power – but enforcement is tricky


Katharine Kemp, UNSW

We need new laws to monitor and curb the power wielded by Google, Facebook and other powerful digital platforms, according to the Australian Competition and Consumer Commission (ACCC).

The Preliminary Report on the Digital Platforms Inquiry found major changes to privacy and consumer protection laws are needed, along with alterations to merger law, and a regulator to investigate the operation of the companies’ algorithms.

Getting the enforcement right will be key to the success of these proposed changes.




Read more:
Digital platforms. Why the ACCC’s proposals for Google and Facebook matter big time


Scrutinising accumulation of market power

The report says Google and Facebook each possess substantial power in markets such as online search and social media services in Australia.

It’s not against the law to possess substantial market power alone. But these companies would breach our November 2017 misuse of market power law if they engaged in any conduct with the effect, likely effect or purpose of substantially lessening competition – essentially, blocking rivalry in a market.

Moving forwards, the ACCC has indicated it will scrutinise the accumulation of market power by these platforms more proactively. Noting that “strategic acquisitions by both Google and Facebook have contributed to the market power they currently hold”, the ACCC says it intends to ask large digital platforms to provide advance notice of any planned acquisitions.

While such pre-notification of certain mergers is required in jurisdictions such as the US, it is not currently a requirement in other sectors under the Australian law.

At the moment the ACCC is just asking the platforms to do this voluntarily – but has indicated it may seek to make this a formal requirement if the platforms don’t cooperate with the request. It’s not currently clear how this would be enforced.

The ACCC has also recommended the standard for assessing mergers should be amended to expressly clarify the relevance of data acquired in the transaction as well as the removal of potential competitors.

The law doesn’t explicitly refer to potential competitors in addition to existing competitors at present, and some argue platforms are buying up nascent competitors before the competitive threat becomes apparent.




Read more:
Explainer: what is public interest journalism?


A regulator to monitor algorithms

According to the ACCC, there is a “lack of transparency” in Google’s and Facebook’s arrangements concerning online advertising and content, which are largely governed by algorithms developed and owned by the companies. These algorithms – essentially a complex set of instructions in the software – determine what ads, search results and news we see, and in what order.

The problem is nobody outside these companies knows how they work or whether they’re producing results that are fair to online advertisers, content producers and consumers.

The report recommends a regulatory authority be given power to monitor, investigate and publish reports on the operation of these algorithms, among other things, to determine whether they are producing unfair or discriminatory results. This would only apply to companies that generate more than A$100 million per annum from digital advertising in Australia.




Read more:
Attention economy: Facebook delivers traffic but no money for news media


These algorithms have come under scrutiny elsewhere. The European Commission has previously fined Google €2.42 billion for giving unfair preference to its own shopping comparison services in its search results, relative to rival comparison services, thereby contravening the EU law against abuse of dominance. This decision has been criticised though, for failing to provide Google with a clear way of complying with the law.

The important questions following the ACCC’s recommendation are:

  • what will the regulator do with the results of its investigations?
  • if it determines that the algorithm is producing discriminatory results, will it tell the platform what kind of results it should achieve instead, or will it require direct changes to the algorithm?

The ACCC has not recommended the regulator have the power to make such orders. It seems the most the regulator would do is introduce some “sunshine” to the impacts of these algorithms which are currently hidden from view, and potentially refer the matter to the ACCC for investigation if this was perceived to amount to a misuse of market power.

If a digital platform discriminates against competitive businesses that rely on its platform – say, app developers or comparison services – so that rivalry is stymied, this could be an important test case under our misuse of market power law. This law was amended in 2017 to address longstanding weaknesses but has not yet been tested in the courts.




Read more:
We should levy Facebook and Google to fund journalism – here’s how


Privacy and fairness for consumers

The report recommends substantial changes to the Privacy Act and Australian Consumer Law to reduce the power imbalance between the platforms and consumers.

We know from research that most Australians don’t read online privacy policies; many say they don’t understand the privacy terms offered to them, or they feel they have no choice but to accept them. Two thirds say they want more say in how their personal information is used.

The solutions proposed by the ACCC include:

  • strengthening the consent required under our privacy law, requiring it to be express (it may currently be implied), opt-in, adequately informed, voluntary and specific
  • allowing consumers to require their personal data to be erased in certain circumstances
  • increasing penalties for breaches of the Privacy Act
  • introducing a statutory cause of action for serious invasion of privacy in Australia.



Read more:
94% of Australians do not read all privacy policies that apply to them – and that’s rational behaviour


This last recommendation was previously made by the Australian Law Reform Commission in 2014 and 2008, and would finally allow individuals in Australia to sue for harm suffered as a result of such an invasion.

If consent is to be voluntary and specific, companies should not be allowed to “bundle” consents for a number of uses and collections (both necessary and unnecessary) and require consumers to consent to all or none. These are important steps in addressing the unfairness of current data privacy practices.

Together these changes would bring Australia a little closer to the stronger data protection offered in the EU under the General Data Protection Regulation.

But the effectiveness of these changes would depend to a large extent on whether the government would also agree to improve funding and support for the federal privacy regulator, which has been criticised as passive and underfunded.

Another recommended change to consumer protection law would make it illegal to include unfair terms in consumer contracts and impose fines for such a contravention. Currently, for a first-time unfair contract terms “offender”, a court could only “draw a line” through the unfair term such that the company could not force the consumer to comply with it.

Making such terms illegal would increase incentives for companies drafting standard form contracts to make sure they do not include detrimental terms which create a significant imbalance between them and their customers, which are not reasonably necessary to protect their legitimate interests.




Read more:
Soft terms like ‘open’ and ‘sharing’ don’t tell the true story of your data


The ACCC might also take action on these standard terms under our misleading and deceptive conduct laws. The Italian competition watchdog last week fined Facebook €10 million for conduct including misleading users about the extent of its data collection and practices.

The ACCC appears to be considering the possibility of even broader laws against “unfair” practices, which regulators like the US Federal Trade Commission have used against bad data practices.

Final report in June 2019

As well as 11 recommendations, the report mentions nine areas for “further analysis and assessment” which in itself reflects the complexity of the issues facing the ACCC.

The ACCC is seeking responses and feedback from stakeholders on the preliminary report, before creating a final report in June 2019.

Watch this space – or google it.




Read more:
How not to agree to clean public toilets when you accept any online terms and conditions


The Conversation


Katharine Kemp, Lecturer, Faculty of Law, UNSW, and Co-Leader, ‘Data as a Source of Market Power’ Research Stream of The Allens Hub for Technology, Law and Innovation, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Digital platforms. Why the ACCC’s proposals for Google and Facebook matter big time


File 20181210 76971 17q2g3x.jpeg?ixlib=rb 1.1
The Competition and Consumer Commission is worried about the ability of the platforms we use to determine the news we read.
Shutterstock

Sacha Molitorisz, University of Technology Sydney and Derek Wilding, University of Technology Sydney

The Australian Competition and Consumer Commission has released the preliminary report of its Digital Platforms Inquiry, and Google and Facebook won’t be happy.

Rather than adopting a gently-gently approach, the ACCC has produced draft recommendations that are extensive and dramatic.

If implemented, they would significantly affect the way the digital platforms make their money, and help direct the content we consume.

What’s more, the inquiry is touted as a world first. Its findings will be closely monitored, and perhaps even adopted, by regulators internationally.

Who should care?

The digital platforms themselves should (and do) care.

Any new regulations designed to foster competition or protect individual privacy (both are among the ACCC’s recommendations) have the potential to harm their revenues.

They’ve a lot to lose. In 2017, nearly A$8 billion was spent on online advertising in Australia, and more than half went to Google and Facebook (p3).

News organisations whose output is disseminated by those platforms should (and do) care too.

As the ACCC notes, more than half of the traffic on Australian news websites comes via Google and Facebook (p8).




Read more:
News outlets air grievances and Facebook plays the underdog in ACCC inquiry


Increasingly, news producers depend on social media and search engines to connect with consumers. Google is used for 95% of searches (98% on mobile devices).

The rise of Google, Facebook and other digital platforms has been accompanied by unprecedented pressures on traditional news organisations.

Most obviously, classified advertising revenue has been unbundled from newspapers.

In 2001, classified advertising revenue stood at A$2 billion. By 2016, it had fallen to A$200 million. The future of newspapers’ ability to produce news is under a cloud, and digital platforms help control the weather.

Of course, advertisers care too.

But the stakeholders with the most to gain or lose are us, Australian citizens.




Read more:
Taking on big tech: where does Australia stand?


Our lives are mediated by Google, Facebook, Apple, Amazon, Twitter and others as never before. Google answers our search queries; Facebook hosts friends’ baby snaps; YouTube (owned by Google) distributes professional and user-generated videos; Instagram (owned by Facebook) hosts our holiday snaps.

As the ACCC notes, they have given us tremendous benefits, for minimal (apparent) cost.

And they’ve done it at lightning speed. Google arrived in 1998, Facebook in 2004 and Twitter in 2006. They are mediating what comes before our eyes in ways we don’t understand and (because they keep their algorithms secret) in ways we can’t understand.

What does the ACCC recommend?

The ACCC’s preliminary recommendations are far-reaching and bold.

First, it suggests an independent review to address the inadequacy of current media regulatory frameworks.

This would be a separate, independent inquiry to “design a regulatory framework that is able to effectively and consistently regulate the conduct of all entities which perform comparable functions in the production and delivery of content in Australia, including news and journalistic content, whether they are publishers, broadcasters, other media businesses, or digital platforms”.

This is a commendable and urgent proposal. Last year, cross-media ownership laws were repealed as anachronistic in a digital age. To protect media diversity and plurality, the government needs to revisit the issue of regulatory frameworks.




Read more:
Starter’s gun goes off on new phase of media concentration as Nine-Fairfax lead the way


Second, it proposes privacy safeguards. Privacy in Australia is dangerously under-protected. Digital platforms such as Google and Facebook generate revenue by knowing their users and targeting advertising with an accuracy unseen in human history.

As the ACCC puts it, “the current regulatory framework, including privacy laws, does not effectively deter certain data practices that exploit the information asymmetries and the bargaining power imbalances that exist between digital platforms and consumers.”

It makes a number of specific preliminary recommendations, including creating a right to erasure and the requirement of “express, opt-in consent”.

It also supports the creation of a civil right to sue for serious invasions of privacy, as recommended by the Australian Law Reform Commission.

Australians lack the protections that Americans enjoy under the US Bill of Rights; we certainly lack the protection afforded under Europe’s sweeping new privacy law.




Read more:
Google slapped hard in Europe over data handling


It wants the penalties for breaches of our existing Privacy Act increased. It recommends the creation of a third-party certification scheme, which would enable the Office of the Australian Information Commissioner to give complying bodies a “privacy seal or mark”.

And it wants a new or existing organisation to monitor attempts by vertically-integrated platforms such as Google to favour their own businesses. This would happen where Google gives prominence in search results to products sold through Google platforms, or prominence to stories from organisations with which it has a commercial relationship.

The organisation would oversee platforms that generate more than A$100 million annually, and which disseminate news, or hyperlinks to news, or snippets of news.

It would investigate complaints and even initiate its own investigations in order to understand how digital platforms are disseminating news and journalistic content and advertising.

As it notes,

The algorithms operated by each of Google and Facebook, as well as other policies, determine which content is surfaced and displayed to consumers in news feed and search results. However, the operation of these algorithms and other policies determining the surfacing of content remain opaque. (p10)

It makes other recommendations, touching on areas including merger law, pre-installed browsers and search engines, takedown procedures for copyright-infringing content, implementing a code of practice for digital platforms and changing the parts of Australian consumer law that deal with unfair contract terms.

Apart from its preliminary recommendations, there are further areas on which it invites comment and suggestions.




Read more:
New data access bill shows we need to get serious about privacy with independent oversight of the law


These include giving media organisations tax offsets for producing public interest news, and making subscribing to news publications tax deductible for consumers.

Platforms could be brought into a co-regulatory system for flagging content that is subject to quality control, creating their own quality mark. And a new ombudsman could deal with consumer complaints about scams, misleading advertising and the ranking of news content.

All of these recommendations and areas of interest will generate considerable debate.

What’s next?

The ACCC will accept submissions in response to its preliminary report until February 15.

At the Centre for Media Transition, we played a background role in one aspect of this inquiry.

Earlier this year, we were commissioned by the ACCC to prepare a report on the impact of digital platforms on news and journalistic content. It too was published on Monday.

Our findings overlap with the ACCC on some points, and diverge on others.




Read more:
Google and Facebook cosy up to media companies in response to the threat of regulation


Many thorny questions remain, but one point is clear: the current regime that oversees digital platforms is woefully inadequate. Right now, as the ACCC notes, digital platforms are largely unregulated.

New ways of thinking are needed. A mix of old laws (or no laws) and new media spells trouble.The Conversation

Sacha Molitorisz, Postdoctoral Research Fellow, Centre for Media Transition, Faculty of Law, University of Technology Sydney and Derek Wilding, Co-Director, Centre for Media Transition, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Productivity Commission finds super a bad deal. And yes, it comes out of wages


File 20190109 32127 19r5y0d.png?ixlib=rb 1.1
Australia’s super system could give us so much more to retire on, without taking more out of our wages.
Shutterstock

Brendan Coates, Grattan Institute

Want more to retire on?

In its long-awaited final report on the efficiency and competitiveness of Australia’s leaky superannuation system, Australia’s Productivity Commission provides a roadmap.

Weeding out scores of persistently underperforming funds, clamping down on unwanted multiple accounts and insurance policies, and letting workers choose funds from a simple list of top performers would give the typical worker entering the workforce today an extra A$533,000 in retirement.

Even Australians at present in their mid fifties would gain an extra A$79,000.

If this government or the next cares about the welfare of Australians rather than looking after the superannuation industry it’ll use the recommendations to drive retirement incomes higher.

So why the continued talk (from Labor) about lifting compulsory super contributions from the present 9.5% of salary to 12%, and then perhaps an unprecedented 15%?

It’s probably because (and Paul Keating, the former treasurer and prime minister who is the father of Australia’s compulsory superannuation system says this) they think the contributions don’t come from workers, but from employers.

To date, they’ve been dead wrong. And with workers’ bargaining power arguably weaker than in the past, there’s no reason whatsoever to think they’ll be right from here on.

Past super increases have come out of wages

Australia’s superannuation system requires employers to make the compulsory contributions on behalf of their workers. Right now that contribution is set at 9.5% of wages and is scheduled to increase incrementally to 12% by July 2025.

So, for workers, what’s not to like?

It’s that while employers hand over the cheque, workers pay for almost all of it via lower wages. Bill Shorten, then assistant treasurer, made this point in a speech in 2010:

Because it’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation. An increase in super is not, absolutely not, a tax on business. Essentially, both employers and employees would consider the Superannuation Guarantee increases to be a different way of receiving a wage increase.

The Henry Tax Review and other investigations have found this is exactly what happens. Increases in the compulsory super contributions have led to wages being lower than they otherwise would have been.

Even Paul Keating, speaking in 2007, made this point. Compulsory super contributions come out of wages, not from the pockets of employers:

The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost […] In other words, had employers not paid nine percentage points of wages, as superannuation contributions, they would have paid it in cash as wages.

This is more than mere theory. Compulsory super was designed to forestall wage rises. Concerned about a wages breakout in 1985, then Treasurer Paul Keating and ACTU President Bill Kelty struck a deal to defer wage rises in exchange for super contributions.

When the Super Guarantee climbed from 9% to 9.25% in 2013, the Fair Work Commission stated in its minimum wage decision of that year that the increase was “lower than it otherwise would have been in the absence of the super guarantee increase”.

The pay of 40% of Australian workers is based on an award or the National Minimum Wage and is therefore affected by the Commission’s decisions. For these people, there is no question: their wages are lower than they would’ve been if super hadn’t increased.

Where’s the evidence employers pay for super?

If wage rises came from the pockets of employers then we should see a spike in wages plus super when compulsory super was introduced, and again when it was increased. But there wasn’t one when compulsory super was introduced – a point Bill Shorten has made in the past.

When compulsory super was introduced via awards in 1986, workers’ total remuneration (excluding super) made up 63.3% of national income. By 2002, when the phase-in was complete, it made up 60.1%.

Out of the 26 countries for which the Organisation for Economic Co-operation and Development has data, Australia recorded the tenth largest slide in the labour share of national income during the period compulsory super contributions were ramped up.




Read more:
The superannuation myth: why it’s a mistake to increase contributions to 12% of earnings


Of course, changes in super aren’t the only thing that affects workers’ share of national income.

But the size of the fall in the labour share in Australia over the period when the super guarantee was increasing isn’t consistent with the idea that employers picked up the tab for super.

Would it be different this time?

Paul Keating argues that while in the past lifting compulsory super to 9.5% was paid for from wages, a future increase to 12% today would not be:

Workers are not getting real wage increases anywhere, and can’t get them. The Reserve Bank governor makes the point every week. So the award of an extra 2.5% of super to employees via the super guarantee will give them a share of productivity they will not get in the market – without any loss to their cash wages.

But such claims are difficult to square with concerns that workers’ weak bargaining power is one of the reasons current wage growth is so weak.. If employers don’t feel pressed to give wage rises, why would they feel pressed to absorb an increase in the compulsory Super Guarantee?

And while real wages (wages adjusted for inflation) haven’t grown particularly quickly, the dollar value of wages continues to grow: by 2.2% a year over the past five years. It would be easy for employers to simply reduce those increases to offset any increase in compulsory super – as they have in the past.

And no, more contributions won’t help workers

The Grattan Institute’s recent report, Money in Retirement, showed increasing the compulsory super would primarily benefit the top 20% of Australians. It would hurt the bottom half during working life a lot more than it helps them once retired.

Their higher super contributions would not improve their retirement outcomes: their extra super income would be largely offset by lower part-pensions. What’s more, the age pension is indexed to wages. If wages grew by less (as they would as compulsory super contributions were increased) pensions would grow by less too.

Lifting compulsory super would also cost the budget A$2 billion a year in extra tax breaks, largely for high-income earners, because it is lightly taxed.

That would mean higher taxes elsewhere, or fewer services.

For low-income Australians, increasing compulsory super contributions would be a thoroughly bad deal. It means giving up wage increases in return for no boost in their retirement incomes.

A government that wanted to boost the living standards of working Australians both now and in retirement would consider carefully all of the Productivity Commission’s suggestions including this one: an independent inquiry into the whole idea and effectiveness of Australia’s regime of compulsory contributions, to be completed ahead of any increase in the Superannuation Guarantee rate .




Read more:
Why we should worry less about retirement – and leave super at 9.5%


The Conversation


Brendan Coates, Fellow, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Labor’s housing pledge is welcome, but direct investment in social housing would improve it


Julie Lawson, RMIT University and Laurence Troy, UNSW

Despite recent falls in the housing market, housing costs and indebtedness bite deeply into household budgets, especially at Christmas time. Just over 433,000 households confront housing stress and homelessness every day across Australia. They represent the current shortfall of social housing.

If Christmas offers a moment for reflection, ask yourself what should our resolutions be for the housing market? What should we expect our governments to do about it?

In this article, we look at this week’s major statement on housing policy from a key contender to lead Australia’s next government – made by Bill Shorten at the ALP national conference.

We applaud the principle of fairness and the ambition of the ALP policy. We are less supportive of the reliance on for-profit investors, market rent mechanisms and land grabs. Our research shows direct government investment in social housing is ultimately far more efficient and effective than subsidising investors in the long term.




Read more:
Australia needs to triple its social housing by 2036. This is the best way to do it


So what is Labor’s policy?

Shorten’s announcement also pledges reform of tax concessions that are driving inequality between households and investors. However, Labor recognises that this might not be enough to tilt the balance in favour of low-income households, and directing the savings from these changes into housing programs is a welcome move.

Labor proposes to subsidise investors in affordable rental housing, much like the Rudd government’s National Rental Affordability Scheme (NRAS). Labor would offer an $8,500-a-year subsidy over 15 years to investors who build new homes for low-income and middle-income households to rent at an “affordable” rate – 20% below market rent.

Starting modestly, the program aims to produce 20,000 affordable units over three years, building to a much larger target of 250,000 dwellings over ten years.




Read more:
Shorten’s subsidy plan to boost affordable housing


State governments would also be required to get on board through partnership agreements, as they have done in the past, providing land and other forms of co-investment. Hefty stamp duty revenues in recent years should make this easier for the states.

While Labor’s targets appear high by recent standards, Commonwealth and state governments directly funded the building of 9,000 public housing dwellings each year for the better half of the 20th century – until 1996. Annual production is now down to 3,000 dwellings. That’s not even enough to maintain the existing public share of housing.

Since the mid-1990s, a preference for outsourcing social responsibility through private rental providers and indirect rental support payments has dominated public policy. The ALP’s subsidy-based policy continues this trend.

The proposal centres on maintaining returns to investors at levels that encourage investment. As our previous research has shown, over the longer term this increases cost per dwelling. The question remains, as it did under the NRAS: who are we trying to subsidise here, the investors or the tenants, and is it really equitable and effective?

What are the alternatives?

Previous work has shown that NRAS-type schemes offer most benefit to new affordable housing developments when the funds are directed to not for profit organisations, rather than “leaking” out to the for-profit private sector. The advantages of this approach include:

  • subsidies are retained within the affordable housing system
  • benefits are directed to regulated not-for-profit developers with a social purpose
  • the benefit is stretched out over a longer time, meaning government investment does not expire after a set time.

In the UK, a lack of direct conditional investment and weak definitions of affordability led to an 80% decline in social housing production. Without public equity, recurrent operating subsidies have no influence on design quality or ongoing impact after the expiry of providers’ obligations – or their cancellation. Yes, they can be switched on and off like a tap – as happened in 2014 with the NRAS.

With good design, a new scheme could overcome some of these deficiencies. Labor promises to provide lower annual subsidies than NRAS but for longer – 15 rather than 10 years – adding up to at least $127,500 from the Commonwealth for a tenancy to be offered at below market rents. It’s a substantial commitment.

Yet if this level of support was invested up front to build dwellings, rather than provided as an annual operating subsidy, it would make a substantial and enduring contribution to Australia’s housing needs. This is not only socially responsible, it can drive green innovation and is also more financially responsible too.

The only thing that stands in the way is the narrow public accounting doctrine that privileges day-to-day expenditure over long-term investments. This is something that, in the UK, even the Treasury and the National Audit Office are learning to overcome after the painful experience of the Private Finance Initiative.




Read more:
Homeless numbers will keep rising until governments change course on housing


How much more cost-effective is direct investment?

If equity and fairness are to be the yardsticks of policy, age pensioners, people with disabilities and low-paid workers should be the focus of our deepest support. Our AHURI research has established the level, type and location of investment required to meet the needs of 433,000 low-income households in housing stress or homeless across Australia. The current market offers no affordable or secure options for them.

Our research also compared the cost of subsidising investors versus direct investment by government. Our modelling of costs and review of international experience provide evidence that direct investment is far more efficient and effective in the medium and long term.

Capital funding model.
Lawson et al, 2018, Author provided
Operating subsidy funding model.
Lawson et al, 2018, Author provided

Thus, we argue for more direct investment in social housing, strategic use of efficient mission-driven financing and retained investment via public equity and public land leases.

Recognition of the need for national leadership and policy reform is growing. After backpedalling, the Coalition government moved forward in 2018 to establish, with cross-party support, the National Housing Finance Corporation. This mission focused public corporation will soon channel lower-cost financing towards regulated not-for-profit housing. Of course, financing is debt and not quite the same as funding.




Read more:
Government guarantee opens investment highway to affordable housing


The Australian Greens have yet to announce their policy but an outline suggests a commitment to invest in social housing and establish a federal housing trust.

The ALP’s proposals are framed in line with the laudable principle of fairness and are a work in progress – rather than mission accomplished. Overcoming the shortfall of affordable and secure housing will require purposeful Commonwealth and state government funding, mission driven financing as well as land policies to make housing markets fairer for all.The Conversation

Julie Lawson, Honorary Associate Professor, Centre for Urban Research, RMIT University and Laurence Troy, Research Fellow, City Futures Research Centre, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.